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Insurer not Obligated to Cover Loss for Time when Policies are not Available in Marketplace (NY)

September 16, 2016

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The Appellate Division, 2nd Department, was recently called upon to address the proper allocation of the risk of loss attributable to a continuous harm occurring, in part, during periods when liability insurance was unavailable in the marketplace. Although though this issue had been dealt with in other jurisdictions, it had not been addressed by New York appellate courts.
In <a href="http://www.nycourts.gov/reporter/3dseries/2016/2016_05945.htm"><em>Keyspan Gas E. Corp. v. Munich Reinsurance Am., Inc.</em>,</a> it was alleged that gradual environmental property damage was caused by pollution from manufactured gas plants owned by the plaintiff and/or its predecessors.  Keyspan operated two gas plants located in Rockaway Park, Queens, and Hempstead, Long Island, since the early 20th century. Hazardous waste from the gas plants leached into groundwater over a protracted period of time. There was a dispute as to when the contamination of the sites began and the amount of environmental damage that occurred in any given year could not be precisely ascertained, but it is clear that the contamination was continuous and gradual, occurring over a period of many decades, allegedly between 1903 and 2012 for the two sites.
In 1995, NYDEC sought to hold Keyspan strictly liable for the pollution, requiring it to pay for the investigation and clean-up of these sites, which costs Keyspan millions of dollars. Keyspan sought indemnification from Century, its insurer,  under 16 successive years of general liability insurance policies issued by Century from 1953 to 1969.   Keyspan also claimed Century owed indemnification not only the 16- year period that the policies were in effect, but also periods of time, both before 1953 and after 1969, when insurance covering this risk could not be purchased in the marketplace.<b> </b>Century argued that it was only responsible for damages that occurred during the policy period and that any property damage that occurred outside that 16-year period was the sole responsibility of Keyspan.
The Court discussed the fact that for losses involving a continuous harm, New York courts typically used a pro rata allocation based upon an insurer's time on the risk over the course of the periods of the various applicable policies.  Generally, if there was a period of time when the insured had no coverage, the insured would bear the financial burden for that time period due to its decision not to purchase insurance. The question here, however, was whether the period when there was no coverage was allocable to the insured or to the existing policies due to the fact that coverage was unavailable in the marketplace during those other periods.
The Court noted a split between jurisdictions on this issue.  For example, federal courts in New York and New Jersey courts determined unavailability was an exception because the insured did not voluntarily decide not to have insurance coverage, whereas other states held it was inequitable to have insurers provide coverage outside of their policy periods, whether coverage was unavailable or not.
Here, the Court looked to the policy language and found the policies covered occurrences, accidents and continuous and repeated exposure to conditions that result in damage “during the policy period.” It found that nothing in the policy provided any an "unavailability exception" and that the Court would not rewrite the language of the policy due to public policy concerns.  As such, it reversed the trial court and found in favor of Century, determining it had no obligation to provide coverage outside of its policy period and dismissed the complaint.
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Thanks to Josh Gornitsky for his contribution to this post and please write to <a href="mailto: mbono@wcmlaw.com">Mike Bono </a>for more information.
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